The next chapter in the ongoing saga of WiMAX began last Thursday when WiMAX provider Clearwire sent a "going concern" disclosure to the SEC and announced it is laying off 15% of its workforce. They also suspended their service launches in Denver and Miami and delayed the introduction of their own branded smartphone. The combined moves are expected to save $100 million to $200 million this year, and according to CFO, Eric Prusch, and the company has enough cash on hand to last through the middle of next year. Last month the beleaguered wireless data provider announced that they were considering selling as much as 40 MHz of their spectrum holdings in a bid to raise additional cash to continue their network build out.
In the meantime, Clearwire added a net 1.23 million subscribers in the most recent quarter, increasing their subscriber base to 2.83 million--a 77% growth rate. The demand for higher speed wireless data services continues to grow by leaps and bounds, so the tough financial news in the face of such impressive subscriber gains illustrates the difficulties involved in launching a new mobile network. The big question now becomes, what happens next?
Clearwire was founded by mobile pioneer Craig McCaw in 2003, and was one of two WiMAX operators in the US, with Sprint being the other. The two companies had an on-again-off-again relationship, but finally merged in 2008; Sprint now owns 54% of the company. Clearwire has signed up just over 1 million customers or roughly one-third of their base, while the other two-thirds have been sold by partners, primarily Sprint.
The darkest cloud hanging over Clearwire is the fact that they bet on the dark horse in the 4G race, WiMAX, while the rest of the mobile industry lined up behind the LTE or the Long Term Evolution standard. Clearwire's service is available in roughly 55 markets, with New York being added earlier this month. For the moment, only Metro PCS has deployed LTE service in two US markets, though Verizon has announced plans to light up 38 markets by the end of this year.
From a performance standpoint, the WiMAX service works fine, delivering downstream data rates in the range of 3 Mbps to 5 Mbps allowing mobile video as well as laptop data access that rivals Wi-Fi.
However, the mobile market is driven by devices, not data rates, and Sprint has only two WiMAX-compatible Android-based smartphones, the Evo from HTC and the Epic from Samsung. That gives them two more than what we have for LTE, but the market seems to have recognized that situation will reverse abruptly once LTE services start to roll out.
One thing Clearwire has going for it is significant spectrum holdings in the Broadband Radio Service (BRS) band around 2.5 GHz. to 2.7 GHz., amounting to as much as 120 MHz in most markets. That is a higher frequency band than the top 1.9 G to 2.1 GHz PCS band used for cell phones and far higher than the 700 MHz band Verizon plans to use for their LTE service. Higher frequencies are less attractive as they lose more power over the same distance, meaning that carriers need to build more cell towers to cover an area. Sprint claims a 2.5 GHz. WiMAX deployment needs roughly 20% more towers than a 1.9 GHz. network.
If Clearwire fails to make a go of it, someone is going to grab up that spectrum. Worldwide, we are seeing the demand for mobile data services outstripping the supply, so operators are in a scramble to keep up. Cisco is predicting a compound annual growth rate of 108 percent between 2009 and 2014, and estimates that 66 percent of the world's mobile data traffic will be video by 2014.
The big question is: Will WiMAX be the underlying technology or will the network eventually be switched over to LTE? Clearwire had announced earlier this year that would test LTE, and there is considerable commonality between the two technologies, allowing for dual-purpose base station equipment. However, there is still the question of handsets, which would have to communicate in the 2.5 GHz band as well as the existing 700 MHz, 800 MHz, 1.7 GHz and 1.9 GHz bands.
We're still hoping for more competition in the mobile data space, but this is a big country and it takes a lot of capital to build out a wireless network. It would be sad to see one of the real pioneers go down, but all indicators for mobile data are pointing up, and that Clearwire spectrum will be used by someone.
